Living wages give benefits to the poor

Like many opponents of living wage proposals, the Fraser Institute uses dated, selective and flawed research to identify supposed negative effects of living wage policies.

The truth is most international research on living wage polices demonstrates that they are an effective response that brings significant benefits to low wage workers.

Many studies show that affected businesses are usually able to absorb cost increases related to a living wage policy through a combination of price and/or productivity increases and reduced turnover and/or redistribution within the organization, rather than resort to laying off staff, as the Fraser Institute suggests.

Paying living wages is good for business. Having a well-paid and motivated workforce is the most important investment any employer can make. Paying living wages is also good for communities. Wage increases for lowwage earners are spent locally, often in small businesses.

And living wage policies most definitely benefit the low waged and their families. Hundreds of thousands of low wage workers in Canada are asking to join the ranks of those fortunate enough to be paid a living wage. We would all be better off if they did.

A new report from the Fraser Institute argues that municipal laws intended to boost the wages of poorer workers threaten job prospects for the very people most likely to face poverty.

In its survey of scholarly studies, released Tuesday, the market-oriented think-tank concludes laws mandating what are called “living wages” — generally defined as the minimum earnings that allow full-time workers to meet the basic needs of their families and reach past low-income-tax thresholds — do little to help the most vulnerable workers.

“Both economic theory and the evidence suggest that living wages, like minimum wages, create distortions in the labour market that have a negative impact on employment,” wrote author Charles Lammam.

Faced with having to pay higher wages, employers push back by reducing overall employment, favouring more highly skilled workers and cutting back on hours and training, the report found. It cited U.S. research that showed a 100% increase in living wages, to $20 an hour from $10 an hour, reduced employment among low-skilled workers by between 12 and 17%.

“Indeed, there is a trade-off between the workers who benefit from a higher wage and those who endure the costs due to fewer employment opportunities,” Mr. Lammam wrote.

The push for living wages has gained traction in recent years amid evidence of growing income inequality.

One Canadian city, New Westminster, B.C., enacted a living wage ordinance in 2011, which requires companies awarded municipal contracts to pay a minimum of $19.62 an hour, nearly double the provincial minimum wage of $10.25.

Calgary has a policy in place that gives preference for municipal contracts to companies paying its living wage, set at $12 an hour.

Municipal laws demanding living wages are more common in the United States, where 140 municipalities, including New York City, Chicago, Los Angeles and San Francisco, have adopted the approach since the 1990s.

The Fraser Institute report said only U.S. data is available on the “relatively new” wage floor, but should nonetheless serve as a “cautionary tale for us in Canada about adopting living wage laws.”

Unlike minimum wages, which tend to benefit those in lower-earning industries, Mr. Lammam concluded living wages through municipal contracts tend to target workers already in higher skilled professions who are not at risk of poverty.

The available evidence shows that living-wage policies do not help the most poverty-ridden families, in part because the overwhelming proportion of those benefiting from living wages tend not to be poor

“The available evidence shows that living-wage policies do not help the most poverty-ridden families, in part because the overwhelming proportion of those benefiting from living wages tend not to be poor,” he wrote.

Furthermore, companies holding municipal contracts are prone to pass on increased costs to their client — the city — resulting in a higher municipal tax burden.

A number of organizations in Canada, including the Canadian Centre for Policy Alternatives and Living Wages for Families, have been campaigning for living wages, arguing a higher standard of living will benefit the overall economy.